Here is something all Texas homeowners can be thankful for – homestead rights in the State of Texas. Specifically, homestead protections against creditors after a homeowner dies.
Let’s look at a hypothetical family: husband Doug and wife Lisa, who live happily in Doug’s $450,000 home in Texas.
Doug dies. Three days later Lisa gets a call from the credit card company demanding payment of $50,000 on their past-due account. She is very worried that the credit card company will seize Doug’s house and toss her out on the street.
She should not be – Texas homestead law will ride to the rescue.
What is Texas Homestead Law?
When Doug died, a “probate homestead” automatically arose on the house because he was survived by a spouse. It vested immediately upon Doug’s death. It did not matter that the homestead was Doug’s separate property. The probate homestead exists for both separate and community property.
A probate homestead is exempt from regular creditor claims, such as those asserted by a credit card company. And not just credit card claims – there are very few creditors who are not blocked by a probate homestead. The lucky few who can get around the exemption include mortgage companies and the government for tax liens.
Let’s move the scenario along. Suppose that Lisa decides she can’t afford to keep the home and sells it. Game over? Not at all. The proceeds from the sale are still exempt from creditor claims, for up to six months after the sale. After that, the exemption expires. However, Lisa can be shrewd about it. If she invests the money in another property within those six months, then the new property receives the same protection as the probate homestead.
Does that mean the credit card company will never get paid? No. When Lisa dies, the exemption from the probate homestead arising from Doug’s death expires.
How Does Probate Homestead Affect Community Property?
Now let’s change the game. Suppose Doug and Lisa’s house was purchased during their marriage and is community property. When Doug dies, Lisa has double protection. She has her own homestead exemption that arises from her ownership of the property, and she has the probate homestead exemption that arises from Doug’s death.
How Does Probate Homestead Affect Your Spouse and Children?
Brand new scenario. Let’s suppose that Doug and Lisa have a 1-year-old child, baby Lenny, and the house is owned by Doug as his separate property.
Doug dies. Who has the homestead exemption?
They both do. Lisa, because she is the surviving spouse. Baby Lenny because he is Doug’s minor child. If Lisa then dies, baby Benny still has his own probate homestead exemption.
What Happens If You Leave the Homestead?
What if Lisa decides she’s had enough, abandons the homestead and moves into an apartment? The homestead exemption is still valid. It takes a lot to lose it. Lisa must merely have an intention to return to the homestead to keep the exemption. Her physical absence, alone, is not enough to prove abandonment. She can rent the homestead or offer to sell it, and that still does not prove abandonment. A creditor claiming the homestead exemption no longer exists must prove it beyond the shadow of all reasonable doubt.
The History of Probate Homestead
The probate homestead has a long history in Texas. Take a look at the 1914 Texas Supreme Court case Hoefling v. Hoefling, the 1952 Texas Supreme Court case Butler v. Summers, the 1884 Texas Supreme Court case Watkins v. Davis, Texas Estates Code Section 102.004, and Texas Property Code Section 41.001(c) for some background.
Probate homestead law may be complicated, but it is very important to surviving spouses and minor children.
Do You Need Probate Assistance? Hammerle Finley Can Help
If you have legal questions about probate or estate planning, schedule a consultation with one of the experienced attorneys at Hammerle Finley Law Firm.
Attorney Virginia Hammerle, of Hammerle Finley Law Firm, is in her fifth decade of law practice. She is Board Certified in Civil Trial Law and an Accredited Estate Planner. Reach her at legaltalktexas@hammerle.com. This column does not constitute legal advice.
